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Coles creeping up on Woolies

Wesfarmers, which owns Coles, released its first quarter sales results today. Sales for Coles were up 3.7 per cent. Bunnings and Kmart also performed well. Among Wesfarmers' worst performing businesses were Target and the conglomerate's mining operations. The overall result beat Woolworths' performance for the quarter. Analysts say Woolworths' once dominant market position is now under threat.

Transcript

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BRENDAN TREMBATH: One of Australia's biggest retailers has reported better sales than its rival.

Wesfarmers, which owns Coles, released its first quarter results today. Sales for Coles were up 3.7 per cent. That's a stronger result than Woolworths reported.

Finance reporter David Taylor prepared this report.

(Excerpt from Coles' 'Down,Down' theme)

DAVID TAYLOR: The song is repetitive and quite annoying, something even Coles admits to at the end of the ad.

(Excerpt from ad)

AD VOICE 1: You don't think people might find this annoying, do you?

CROWD IN AD: No!

AD VOICE 2: Saving money is never annoying.

(end excerpt)

DAVID TAYLOR: But this marketing campaign, which has included new store layouts and a greater variety of health foods, has attracted more foot traffic through Coles' stores.

Richard Goyder is the managing director of Wesfarmers, which owns a slew of retailers including Coles, as well as mining interests and insurance.

RICHARD GOYDER: A highlight of the quarter was the increase in comparable food and liquor sales growth at Coles to 3.7 per cent for the quarter, which builds upon the strong growth achieved in the prior corresponding period.

DAVID TAYLOR: The company's recent track record now looks quite impressive.

RICHARD GOYDER: the ongoing positive trend in sales achieved in the period now means we have had 17 consecutive quarters of growth in customer transactions, units, and increases in our selling space productivity.

DAVID TAYLOR: It's the fruit of a five year turnaround strategy now in its final year.

Richard Goyder says all of the company's retail divisions are making good progress in implementing their strategic plans.

In terms of sales Bunnings and Kmart performed particularly well during the period.

Sales at Wesfarmers' office supplies stores, Officeworks, were flat.

But some of the company's other divisions aren't faring so well.

Take the coal mine, for instance.

RICHARD GOYDER: But you know, we've just got - this is totally consistent with the outlook that I gave in August - we've got a combination now of falling prices, continued high exchange rate, the lag on Stanwell, now we've got carbon tax this year, we've got an increase in state royalties, so it's a challenging time not just for us but I suspect for all coal producers at the moment in Australia.

DAVID TAYLOR: The fund manager Roger Montgomery though says it's also concerning for the company's shareholders.

ROGER MONTGOMERY: When you buy Wesfarmers you're not just buying Coles. You're buying their coal business as well, and today they've also announced their quarterly negotiated price for coal and that's $160 a tonne.

Now bear this in mind, it is down 26 per cent from the last quarter, but it is down significantly more than that from the start of the year.

Back in January, they were receiving $230 a tonne for their coal. They're now getting $160 a tonne.

DAVID TAYLOR: Brokers have looked past the disappointing mining results.

Martin Lakos is from Macquarie Private Wealth.

MARTIN LAKOS: Yeah, look, Wesfarmers have come out with its quarterly sales number, up about just under 5 per cent across food and liquor, mixed numbers on the coal side.

Metallurgical coal down about 12.5 per cent, but thermal coal up 13.

But overall a pretty solid set of numbers in terms of growth for Wesfarmers.

DAVID TAYLOR: Roger Montgomery says that growth is likely to continue, but the supermarket chain still has a lot of work to do to equal Woolworths' market share.

ROGER MONTGOMERY: And what we're seeing is that what people in my industry like to call a normalisation of this particular duopoly and so they'll continue to grow perhaps at a faster rate for some time.

DAVID TAYLOR: How long do you think it will take, though, before the Coles supermarket chain is equivalent or in the same ballpark as the Woolworths supermarket machine?

ROGER MONTGOMERY: It'll take years. It won't happen in weeks or months, it'll take years.

DAVID TAYLOR: But they're making good progress?

ROGER MONTGOMERY: They're making excellent progress.

DAVID TAYLOR: You look at management a lot in your analysis. A lot of this success that Coles has experienced over the last five years with its turnaround strategy, is that to do with Richard Goyder's leadership or is it the result of something else, something else that Coles has been doing?

ROGER MONTGOMERY: Well, it's the result of his leadership through the appointment of some very targeted and very effective people who, I might point out, aren't there for the long haul.

DAVID TAYLOR: Shares in Wesfarmers finished down three cents to $34.57, while shares in rival Woolworths closed up 0.5 per cent to $29.15.